Scottsdale pension deal draws more heat

The Scottsdale City Council on Tuesday will consider whether to hold off on shelling out $5.2 million to cover additional pension costs for a group of recent city retirees.

Scottsdale Councilman Bob Littlefield says he wants to suspend the payout until the city determines whether it can go after former city executives who had input into the early-retirement program and then took the deal, each walking away with hundreds of thousands of dollars in cash and benefits.

"I met with (City Attorney Bruce) Washburn on Wednesday," Littlefield told me. "I said, 'Look, this is ridiculous. These guys clearly self-dealed. What can we do about it?' and he said, 'Well, I'm already on it.' He's looking at both civil and criminal. The idea is to see what options we have."

City leaders have known for a year that they got snookered by Scottsdale's Early Retirement Golden Parachute Drop, a $3 million to $5 million plan that wound up costing taxpayers $11.5 million, once various employee perks were added in. The snookering, however, was their own fault. The City Council approved the deal with virtually no questions asked.

Then came the revelation last week that then-Assistant City Manager Neal Shearer suggested a one-line change to the deal the day after the council approved the program. As a result, he walked away with an extra $17,750 a year in pension pay for the rest of his life, according to city calculations. The change in the date the retirement-incentive checks were issued boosted the pensions of several dozen of the city's longest-serving employees, including Shearer and then-Assistant City Manager Roger Klingler - at a cost to taxpayers of $2.8 million.

In all, the city owes $5.2 million to the Arizona State Retirement System to cover the "unfunded liability" created by offering the early-retirement program to 101 employees. Of that, more than $600,000 is to cover added pension benefits just for Shearer and Klingler.

A city audit this week rapped top management for failing to disclose the full cost to the City Council, including a provision to round up years of service when computing payouts - in essence giving an extra week's pay for a year never worked - and for quietly exempting those about to retire early from a 2 percent pay cut.

But it is Shearer's suggested change to the plan, in an e-mail sent the morning after the council approved it, that has city leaders going bug-eyed. In his e-mail to top city and human resources staffers, Shearer wrote: "In reading the 'fine print,' I see that the lump-sum payment will be made to the employee approx. one month after the retirement system benefits begin. This makes no difference to post-1984 retirees, who cannot roll such payouts into their pension calculation. However, this approach would greatly disadvantage pre-1984 retirees."

Under the rules, government workers such as Shearer who joined the state retirement system before 1984 can add their various benefits, including early-retirement bonuses, to the salary used to calculate their pension as long as they get the money at the time of retirement.

After Shearer's e-mail was sent, the city changed the payout date of the incentive from a month after retirement to the time of retirement.

Shearer has told me that the city intended the pension boost all along and that he was simply alerting the human-resources staff to an "inadvertent oversight."

In response to the audit, city executives say the HR department had no idea that the timing of the retirement checks mattered.

"ASRS has yet to explain why they did not provide this information to the City at any time through this process," they wrote.

However, the January 2009 e-mail exchange with Shearer shows the city did know before making the change. Meanwhile, David Cannella, a spokesman for ASRS, says no one from Scottsdale even contacted the retirement system about the program until early February 2009, several weeks after the payout date was moved.

Littlefield thinks the stink is strong enough to warrant investigation, and he wants to hold off paying the $5.2 million pension bill until Washburn sorts it out. If it's not paid by July 4, Cannella says, ASRS will charge 8 percent interest.

Washburn declined to comment, citing attorney-client privilege. But Littlefield's talking. He wants to go after everybody who had a hand in designing the plan and then reaping the riches.

"There is not just one smoking gun," he said. "It's like a whole smoking arsenal."